<?xml version="1.0" encoding="UTF-8"?><xml><records><record><source-app name="Biblio" version="6.x">Drupal-Biblio</source-app><ref-type>13</ref-type><contributors><authors><author><style face="normal" font="default" size="100%">Kurz, Mordecai</style></author></authors></contributors><titles><title><style face="normal" font="default" size="100%">Rational Diverse Beliefs and Economic Volatility </style></title></titles><dates><year><style  face="normal" font="default" size="100%">2007</style></year><pub-dates><date><style  face="normal" font="default" size="100%">06/2007</style></date></pub-dates></dates><number><style face="normal" font="default" size="100%"></style></number><section><style face="normal" font="default" size="100%"></style></section><edition><style face="normal" font="default" size="100%"></style></edition><publisher><style face="normal" font="default" size="100%"></style></publisher><orig-pub><style face="normal" font="default" size="100%"></style></orig-pub><reprint-edition><style face="normal" font="default" size="100%"></style></reprint-edition><pub-location><style face="normal" font="default" size="100%"></style></pub-location><volume><style face="normal" font="default" size="100%"></style></volume><num-vols><style face="normal" font="default" size="100%"></style></num-vols><pages><style face="normal" font="default" size="100%"></style></pages><isbn><style face="normal" font="default" size="100%"></style></isbn><language><style face="normal" font="default" size="100%"></style></language><abstract><style face="normal" font="default" size="100%">&lt;p&gt;This is a chapter in a new series of Handbook in Financial Economics entitled “
&lt;i&gt;Dynamics and Evolution of Financial Markets&lt;/i&gt;.”
 It explores works which contribute to explaining market dynamics and volatility by employing models of rational 
but diverse beliefs. This excludes models of Behavioral Economics. The first part gives a complete exposition of 
Noisy Rational Expectations (i.e. REE) Asset Pricing Theory where diversity of beliefs arises from diverse private 
information. Examination of these models enable us to evaluate the assumptions made and the ability of the models 
to explain the data about market dynamics. The general conclusion is that, although Noisy REE asset pricing theories 
have many attractive features, they do not offer a satisfactory paradigm for market dynamics. Indeed, for most models 
&lt;i&gt;increased amount of idiosyncratic private information leads to a reduction in volatility&lt;/i&gt;.

&lt;/p&gt;&lt;p&gt;We next turn to models of diverse beliefs without private information. We explore work on Rational Belief Equilibria 
(i.e. RBE) starting with modeling beliefs. Agents do not know the structure of the dynamically complex economy but have 
data over a long time to enable an econometric computation of the empirical moments, on the basis of which they compute 
a commonly known empirical probability on sequences. A belief is then a model of&lt;i&gt; deviations from the empirical 
probability&lt;/i&gt;. It is shown that to be rational a belief cannot be constant, creating an endogenous mechanism for market 
dynamics. For the development of an equilibrium theory, beliefs are treated as a vector of state variables and 
&lt;i&gt;market belief&lt;/i&gt; is the distribution of individual beliefs. Market
belief is an observable for which ample data is available and we review
both data sources and applications which use such data. Much of the
material reviewed covers the applications of this theory to the study
of market dynamics. We trace the implication of one specific model to
the explanation of a long list of stylized facts known about market
volatility via simulations. It is seen that the results demonstrate
that the model�s predictions are compatible with the available data. It
is then argued that these results offer an unified and intuitive
explanation for many diverse phenomena of market dynamics such as
excess asset price volatility, the Equity Premium Puzzle, the
predictability of asset returns and the cause of stochastic volatility.
&lt;/p&gt;</style></abstract><issue><style face="normal" font="default" size="100%"></style></issue><work-type><style face="normal" font="default" size="100%"></style></work-type><accession-num><style face="normal" font="default" size="100%"></style></accession-num><call-num><style face="normal" font="default" size="100%"></style></call-num><notes><style face="normal" font="default" size="100%"></style></notes><research-notes><style face="normal" font="default" size="100%"></style></research-notes><custom1><style face="normal" font="default" size="100%">06-012</style></custom1><custom2><style face="normal" font="default" size="100%"></style></custom2><custom3><style face="normal" font="default" size="100%"></style></custom3><custom4><style face="normal" font="default" size="100%"></style></custom4><custom5><style face="normal" font="default" size="100%"></style></custom5><custom6><style face="normal" font="default" size="100%"></style></custom6><custom7><style face="normal" font="default" size="100%"></style></custom7><auth-address><style face="normal" font="default" size="100%"></style></auth-address><remote-database-name><style face="normal" font="default" size="100%"></style></remote-database-name><remote-database-provider><style face="normal" font="default" size="100%"></style></remote-database-provider><label><style face="normal" font="default" size="100%"></style></label><access-date><style face="normal" font="default" size="100%"></style></access-date></record></records></xml>